EXIDE TECHNOLOGIES XIDE
June 20, 2013 - 5:06pm EST by
sag301
2013 2014
Price: 0.21 EPS $0.00 $0.00
Shares Out. (in M): 79 P/E 0.0x 0.0x
Market Cap (in $M): 17 P/FCF 0.0x 0.0x
Net Debt (in $M): 985 EBIT 0 0
TEV ($): 1,000 TEV/EBIT 0.0x 0.0x

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  • Distressed debt
  • Battery
  • Bankruptcy

Description

Exide’s $675mm of 2nd Lien Bonds trade at less than 70 cents on the dollar.  After considering the $250mm of senior DIP claim, the 2nd lien at 70 create Exide at $720mm EV. At this price one is creating a business with significant market share and strategic relevance at less than 4.2x Last 4 years EBITDA and less than 65% of current tangible assets.

 

Business Description:

Exide is a leading producer of lead acid batteries.  Exide has manufacturing operation around the world, roughly 60% of sales are in Europe and the rest of the world and 40% of sales are in the US.  The battery business is a highly concentrated industry with XIDE having the #1 or 2 position in each market and the top 4 players representing over 80% of sales in each market.  XIDE operates two business lines: Transportation and Industrial.  

Transportation (62% of company sales) manufactures and distributes auto batteries for cars, trucks off-road vehicles, motorcycles, RV’s, boats and construction vehicles.  67% of Transportation sales are to the aftermarket, primarily retailers and 33% of sales are to OEM’s.  Aftermarket sales tend to be less cyclical than OEM sales, major aftermarket customers include: NAPA, CSK Auto, Tractor Supply and Canadian Tire.  XIDE’s Transportation segment has a number 2 position (in both Europe and theUS) with a roughly 40% market share.  The number one player is JCI.

Industrial (38% of company sales) is composed of Motive Power (63% of Industrial sales) and Network Power (37% of Industrial sales).  Motive Power sells lead-acid batteries for forklifts, golf carts, wheelchairs, industrial electric vehicles, locomotives and submarines.  Network Power provides standby and backup batteries for communication and data networks, hospitals, air traffic controllers, security systems and utilities. 

 

Competitive Landscape by Segment:

North American Transportation Aftermarket:

  1. Johnson      Controls (50%)
  2. Exide (38%)

Others: East Penn

North American Transportation OEM:

1.   Johnson Controls

  1. Exide

Johnson Controls and Exide

European Transportation:

  1. JCI
  2. Exide
  3. Fiamm

 

European Motive Power:

  1. Exide
  2. Hawker      Battery Group (Enersys)
  3. Fiamm

North AmericaMotive Power:

  1. Enersys
  2. Exide

Others: C&D Technologies, East Penn

AsiaMotive Power:

  1. Yuasa      (formerly owned Enersys)

Others: JSB, Shinkobe,Hitachi

 

Worldwide Network Power:

  1. Enersys      (after acquiring Hawker)
  2. Exide

North AmericaNetwork Power:

Top 2: C&D Technologies and Enersys

  1. Exide

EuropeNetwork Power:

  1. Exide

Asian Network Power:

  1. Yuasa

 

           

LEAD DYNAMICS

            Over 90% of lead used inNorth Americacomes from recycled sources.  In addition to operating manufacturing facilities, XIDE is the largest smelter/recycler of lead in theUS.  Lead accounts for nearly 50% of XIDE’s COGC.  Recently Exide has been hurt by a mismatch in contract pricing.  The company sells batteries based on the LME price of lead; while the company acquires core in the physical market which has prevented the company form immediate passing on the increased cost of cores.

 

Restructuring

            Exide filed for bankruptcy on June 10th.  The bankruptcy was caused by weak operating results, environmental issues leading to the closure of the company’s Vernon smelting facility, and a vendor driven liquidity squeeze.  Following the bankruptcy filing Exide entered into a $500mm DIP facility.  $250mm of which represents permanent funded debt.

 

The closure of the Vernon facility (a contributing factor to the bankruptcy) has been stayed by a Judge and should result in less disruption than anticipated at the time of the Exide filing.  

 

 

Exide’s US battery operations have deteriorated materially due to customer losses, smelter closures, and pricing mismatch and general mismanagement. Exide is not currently a viable competitor to JCI in the NA auto batteries due to poor performance at the company’s lead smelting operation and structurally higher manufacturing costs. 

It is entirely possible that the US batter business will never operate profitably. 

 

For the purpose of thinking about the value of Exide it is helpful to separate the company into “bad” (US Auto) and “good” (rest of business).

 

The rest of the businesses have average $138mm of EBITDA over the past 4 years ($118mm LTM).  These businesses do not face the same structural issues present at the US auto operation.

 

Based on the trading value of competitor Enersys.  The “good” businesses should support a 6.5-8.0x EBITDA multiple.

 

Last 4 yrs EBITDA

$138.0

 
       
 

6.5x

7.0x

8.0x

       
 

$897

$966.0

$1,104

       
       

LTM EBITDA

$118.0

 
       
 

6.5x

7.0x

8.0x

       
 

$767

$826.0

$944

 

 

The value range of the good businesses suggests that Exide ex- US Auto is worth 76-126% on the 2nd lien bonds – well above current trading levels.

 

US auto could be liquidated.  US represents 33% of the company’s sales, assuming Current assets is roughly in line with sales, US auto has 300-350mm of current assets.  The current assets are made up of receivables and inventory (each representing 50% of current assets).  Receivables are from NA auto OEM’s and leading retailers and likely fully recoverable.  Inventory is made up of lead and finished batteries, which should have a high liquidation value but much less than 100cents.

 

Receivables

$175.0

 
       
 

75%

85%

95%

       
 

$131

$148.8

$166

       

Inventory

$175.0

 
       
 

50%

60%

70%

       
 

$88

$105.0

$123

       

Total Liquidation proceeds

 
 

$219

$254

$289

 

 

 

 

When combined with the value of the good businesses ($767-$1,104mm), Exide looks to be worth $986-$1,393.  Which should support recoveries to the 2nd lien well above 70 cents.  See below.  (cost of bk is to account for professional fees and some recovery to jr. creditors)

 

 

Value of Exide

$986.0

 

$1,393.0

         

Cost of BK

$200.0

 

$200.0

         

Value to Creditors

$786.0

 

$1,193.0

         

DIP

 

$250.0

 

$250.0

         

Value ot 2nd lien

$536.0

 

$943.0

         

2nd Lien Cliam

$675.0

 

$675.0

         

Recovery

 

79%

 

140%

I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Progression of ch. 11
    sort by    

    Description

    Exide’s $675mm of 2nd Lien Bonds trade at less than 70 cents on the dollar.  After considering the $250mm of senior DIP claim, the 2nd lien at 70 create Exide at $720mm EV. At this price one is creating a business with significant market share and strategic relevance at less than 4.2x Last 4 years EBITDA and less than 65% of current tangible assets.

     

    Business Description:

    Exide is a leading producer of lead acid batteries.  Exide has manufacturing operation around the world, roughly 60% of sales are in Europe and the rest of the world and 40% of sales are in the US.  The battery business is a highly concentrated industry with XIDE having the #1 or 2 position in each market and the top 4 players representing over 80% of sales in each market.  XIDE operates two business lines: Transportation and Industrial.  

    Transportation (62% of company sales) manufactures and distributes auto batteries for cars, trucks off-road vehicles, motorcycles, RV’s, boats and construction vehicles.  67% of Transportation sales are to the aftermarket, primarily retailers and 33% of sales are to OEM’s.  Aftermarket sales tend to be less cyclical than OEM sales, major aftermarket customers include: NAPA, CSK Auto, Tractor Supply and Canadian Tire.  XIDE’s Transportation segment has a number 2 position (in both Europe and theUS) with a roughly 40% market share.  The number one player is JCI.

    Industrial (38% of company sales) is composed of Motive Power (63% of Industrial sales) and Network Power (37% of Industrial sales).  Motive Power sells lead-acid batteries for forklifts, golf carts, wheelchairs, industrial electric vehicles, locomotives and submarines.  Network Power provides standby and backup batteries for communication and data networks, hospitals, air traffic controllers, security systems and utilities. 

     

    Competitive Landscape by Segment:

    North American Transportation Aftermarket:

    1. Johnson      Controls (50%)
    2. Exide (38%)

    Others: East Penn

    North American Transportation OEM:

    1.   Johnson Controls

    1. Exide

    Johnson Controls and Exide

    European Transportation:

    1. JCI
    2. Exide
    3. Fiamm

     

    European Motive Power:

    1. Exide
    2. Hawker      Battery Group (Enersys)
    3. Fiamm

    North AmericaMotive Power:

    1. Enersys
    2. Exide

    Others: C&D Technologies, East Penn

    AsiaMotive Power:

    1. Yuasa      (formerly owned Enersys)

    Others: JSB, Shinkobe,Hitachi

     

    Worldwide Network Power:

    1. Enersys      (after acquiring Hawker)
    2. Exide

    North AmericaNetwork Power:

    Top 2: C&D Technologies and Enersys

    1. Exide

    EuropeNetwork Power:

    1. Exide

    Asian Network Power:

    1. Yuasa

     

               

    LEAD DYNAMICS

                Over 90% of lead used inNorth Americacomes from recycled sources.  In addition to operating manufacturing facilities, XIDE is the largest smelter/recycler of lead in theUS.  Lead accounts for nearly 50% of XIDE’s COGC.  Recently Exide has been hurt by a mismatch in contract pricing.  The company sells batteries based on the LME price of lead; while the company acquires core in the physical market which has prevented the company form immediate passing on the increased cost of cores.

     

    Restructuring

                Exide filed for bankruptcy on June 10th.  The bankruptcy was caused by weak operating results, environmental issues leading to the closure of the company’s Vernon smelting facility, and a vendor driven liquidity squeeze.  Following the bankruptcy filing Exide entered into a $500mm DIP facility.  $250mm of which represents permanent funded debt.

     

    The closure of the Vernon facility (a contributing factor to the bankruptcy) has been stayed by a Judge and should result in less disruption than anticipated at the time of the Exide filing.  

     

     

    Exide’s US battery operations have deteriorated materially due to customer losses, smelter closures, and pricing mismatch and general mismanagement. Exide is not currently a viable competitor to JCI in the NA auto batteries due to poor performance at the company’s lead smelting operation and structurally higher manufacturing costs. 

    It is entirely possible that the US batter business will never operate profitably. 

     

    For the purpose of thinking about the value of Exide it is helpful to separate the company into “bad” (US Auto) and “good” (rest of business).

     

    The rest of the businesses have average $138mm of EBITDA over the past 4 years ($118mm LTM).  These businesses do not face the same structural issues present at the US auto operation.

     

    Based on the trading value of competitor Enersys.  The “good” businesses should support a 6.5-8.0x EBITDA multiple.

     

    Last 4 yrs EBITDA

    $138.0

     
           
     

    6.5x

    7.0x

    8.0x

           
     

    $897

    $966.0

    $1,104

           
           

    LTM EBITDA

    $118.0

     
           
     

    6.5x

    7.0x

    8.0x

           
     

    $767

    $826.0

    $944

     

     

    The value range of the good businesses suggests that Exide ex- US Auto is worth 76-126% on the 2nd lien bonds – well above current trading levels.

     

    US auto could be liquidated.  US represents 33% of the company’s sales, assuming Current assets is roughly in line with sales, US auto has 300-350mm of current assets.  The current assets are made up of receivables and inventory (each representing 50% of current assets).  Receivables are from NA auto OEM’s and leading retailers and likely fully recoverable.  Inventory is made up of lead and finished batteries, which should have a high liquidation value but much less than 100cents.

     

    Receivables

    $175.0

     
           
     

    75%

    85%

    95%

           
     

    $131

    $148.8

    $166

           

    Inventory

    $175.0

     
           
     

    50%

    60%

    70%

           
     

    $88

    $105.0

    $123

           

    Total Liquidation proceeds

     
     

    $219

    $254

    $289

     

     

     

     

    When combined with the value of the good businesses ($767-$1,104mm), Exide looks to be worth $986-$1,393.  Which should support recoveries to the 2nd lien well above 70 cents.  See below.  (cost of bk is to account for professional fees and some recovery to jr. creditors)

     

     

    Value of Exide

    $986.0

     

    $1,393.0

             

    Cost of BK

    $200.0

     

    $200.0

             

    Value to Creditors

    $786.0

     

    $1,193.0

             

    DIP

     

    $250.0

     

    $250.0

             

    Value ot 2nd lien

    $536.0

     

    $943.0

             

    2nd Lien Cliam

    $675.0

     

    $675.0

             

    Recovery

     

    79%

     

    140%

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Progression of ch. 11
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